Romney Offers New Tax Details

By

John D. McKinnon and

Sara Murray

Updated Sept. 21, 2012 7:37 p.m. ET

Mitt Romney released tax returns on Friday showing that he and his wife paid an effective federal rate of 14.1% in 2011, in a bid to satisfy calls for more information about the presidential candidate's taxes.

The Romney campaign also released a letter from PricewaterhouseCoopers accountants saying that in each year between 1990 and 2009, the Romneys owed state and federal income taxes and paid an average annual effective federal rate of 20.2%.

Mitt Romney and his wife, Ann, paid an effective tax rate of 14.1% for 2011 - roughly in line with other recent years - the Romney campaign said Friday. John McKinnon has details on The News Hub. Photo: Reuters.

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The campaign said the Romneys chose not to deduct all of the $4 million in charitable donations they made in 2011, as the full deduction would have reduced their tax rate to below 13%. Mr. Romney has said he never paid a lower rate than 13% in the past 10 years. The 2011 return showed the Romneys paid more than $1.9 million in tax on income of nearly $13.7 million for 2011, most of it investment returns.

In effect, Mr. Romney, a former private-equity executive and governor of Massachusetts, paid more in taxes than he was legally required to in 2011—something he previously has suggested a person who wants to be president shouldn't do.

David Kautter, managing director of the Kogod Tax Center at American University, estimates that if the Romneys had taken the full $4 million deduction for their charitable contributions instead of the $2.25 million they took, their effective tax rate would have been about 10.5%. Mr. Kautter estimated that Mr. Romney overpaid his federal income tax by nearly $500,000.

Friday's release of documents came after months of Democratic criticism that Mr. Romney paid a low tax rate, given his wealth, and that his promise to release two years of returns amounts to less disclosure than many past presidential candidates.

Investment income often is subject to tax rates lower than for wages and salaries, which are taxed at a top rate of 35%. The current top rate for capital gains and dividends is 15%. That helped the Romneys achieve their relatively low tax rate for 2011 and other years. Democrats have criticized the Romneys' tax rate as evidence that the well-to-do don't pay their fair share under current rules.

President Barack Obama and his wife, Michelle, paid $162,074 in tax for 2011 on adjusted gross income of $789,674—a 20.5% rate. The Obama campaign responded by highlighting Mr. Romney's tax rate, and calling for him to release more years of returns. "People like Mitt Romney pay a lower tax rate than many middle-class families because of a set of complex loopholes and tax shelters only available to those at the top," Stephanie Cutter, Mr. Obama's deputy campaign manager, said in a written statement.

Tax Highlights

In 2011, the Romneys paid $1,935,708 in taxes on $13,696,951 in mostly investment income.

Their effective tax rate for 2011 was 14.1%.

They donated $4,020,772 to charity in 2011, amounting to nearly 30% of their income.

In each year over 20 years, they owed both state and federal income taxes.

Over the entire 20-year period, their average annual effective federal tax rate was 20.2%.

What Is Your Effective Tax Rate?

Previously, the Romney campaign had released an estimate of the Romneys' 2011 return. The complete return was delayed because investment information required to prepare it wasn't available by April 15, and the Romneys got an automatic extension from the Internal Revenue Service.

One surprise in the returns: The Romneys' actual income and tax for last year appears to be significantly lower than the campaign estimated earlier this year. In January, the campaign said the Romneys would pay $3.23 million in federal tax on $20.9 million in total income. But the final return shows that they paid $1.9 million in tax on income of $13.7 million for 2011.

David Lifson, a tax partner at Crowe Horwath LLP in New York, said the discrepancy with the earlier estimate isn't unusual for somebody like Mr. Romney with complex investments in partnerships. Oftentimes, he said, taxpayers have no idea how much they made until they get the tax forms from partnerships, which aren't due until mid-September. Mr. Lifson said Mr. Romney could amend his return within three years and reclaim the amount he overpaid by forgoing some of his deductions.

The accountant letter shows that over the 20-year period, the Romneys donated an average of 13.45% of their adjusted gross income to charity.

By comparison, the Obamas donated $172,130, or roughly 21.8% of their income, to charity in 2011, and about 14.2% in 2010. That was up from 5.8% in 2009. The Obamas gave between 4.6% and 6.2% of their income to charity between 2005 and 2008.

When the Romneys' self-employment payroll tax is excluded, their effective income-tax rate is 13.9%. In general, the Romneys have given more to charity but paid a lower tax rate; the Obamas have paid a higher tax rate, but donated a lower percentage to charity.

A major reason for the Romneys' relatively low tax rate was that $5.5 million of their income in 2011 came from "carried interest," a form of compensation for private-equity executives that's accorded the low 15% capital-gains federal rate.

Reflecting the complexity of Gov. and Mrs. Romney's investments, the couple reported $3.5 million in foreign income, on which they paid taxes. They also filed various forms reflecting holdings in the Cayman Islands, Switzerland, Ireland, Germany and elsewhere.

David S. Miller, a tax attorney at Cadwalader, Wickersham & Taft LLP, said that given the Romneys' decision to give up part of their charitable deduction, it is difficult to say that Mr. Romney's tax rate is really 14.1%. Instead, he said, it is a lower rate, "and he made a voluntary donation to the federal government."

This summer, some prominent Republicans called on Mr. Romney to release more years of tax returns. But the clamor was eclipsed by other matters in recent weeks so that "I'd forgotten all about it,'' said Whit Ayres, a Republican pollster. Mr. Ayres, who hadn't yet studied the new documents, said, "If there's nothing contained in them, you wonder why he didn't do it six months ago."

Over the summer, Senate Majority Leader Harry Reid said an anonymous source told him that in some years, Mr. Romney paid no taxes. Mr. Reid provided no evidence for the assertion. Mr. Reid responded Friday to news of the returns by saying Mr. Romney should release more tax records.

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